Tuesday’s Tip: Understanding The Many Flavors of Cloud Computing and SaaS

Published on March 22, 2010 by R "Ray" Wang

Confusion Continues With Cloud Computing And SaaS Definitions

Coincidence or just brilliance must be in the air as three esteemed industry colleagues, Phil Wainewright, Michael Cote, and James Governor, have both decided to clarify definitions on SaaS and Cloud within a few days of each other. In fact, this couldn’t be more timely as SaaS and Cloud enter into mainstream discussion with next gen CIO’s evaluating their apps strategies. A few common misconceptions often include:

“That hosting thing is like SaaS”

“Cloud, SaaS, all the same, we don’t own anything”

“OnDemand is Cloud Computing”

“ASP, Hosting, SaaS seems all the same”

“It all costs the same so what does it matter to me?”

“Why should I care if its multi-tenant or not?

“What’s this private cloud versus public cloud?”

Cloud Computing Represents The New Delivery Model For Internet Based IT services

Infrastructure-as-a-Service (IaaS) – The physical world goes virtual with servers, networks, storage, and systems management in the cloud.

Figure 1. Traditional Delivery Compared To Cloud Based Delivery

The Apps Layer In The Cloud Represents Many Flavors From Hosted To True SaaS

SaaS purists often challenge vendors on delivery models in the cloud at the apps layer (see Figure 2). Often classified as OnDemand, there are 3 common approaches:

Single Instance – (a.k.a. “On Demand”). Think traditional apps deployed one cusotmer per app or per server. Many vendors provide hosting capabilities. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software

Multi Instance – (a.k.a. “Server Virtualized”). Think “VMware” like. Apps deployed into a shared-web hosting environment. A single instance copy of the app is configured and deployed into a web directory for each customer. Vendor benefit from easier to manage multi-instance environments. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, customize, and in most cases choose when they want to change the code. All customers can use different versions of the software.

Multi-tenant – (a.k.a. “True SaaS”). Apps in a multi-tenant deployments provide a single operating environment shared by multiple customers. Config files are created and deployed each time a customer request services. Customers don’t worry about the IT infrastructure and retain the flexibility to modify, configure but NOT customize the code. Customers usually receive upgrades at the same time. Everyone shares the same code.

Figure 2. Different Strokes Of OnDemand For Different Folks

The Bottom Line – Different Models Bring Varying Degrees Of Trade Offs In Cost Versus Flexibility

Keep in mind there are cases where one deployment option is more favorable than another. Just because you are multi-tenant SaaS doesn’t mean you are better. On the other hand, when vendors tout OnDemand as a SaaS offering, then the SaaS bigotry begins. Be on the look out as more vendor provide mix-mode offerings to support disconnected modes, SaaS and On-premise, Public and Private clouds, as well as other improvements in integration with stronger client side ESB’s. Expect many vendors to put their offerings into the Cloud as Cloud/SaaS moves beyond the mainstream for apps strategy. Let’s take a look at a two decision criteria:

Scenario 1: From least expensive to most expensive to run for a vendor:

True SaaS

Server Virtualized

Hosting

Why is this important? Let’s see, you choose a Hosted solution and the vendor’s costs to run the app goes up with each new customer as it has to manage the different environments. No matter how hard the vendor will try to “fit” everyone to standard configurations and deployments, that’s not always possible. Flexibility has a cost. In a “True Saas” solution, the cost to add an additional customer is minimal and each customer reduces the overall cost for everyone. Ultimately, a True SaaS deployment will have the lowest cost/user/month fee. What will you do 5 years into an Hosting scenario when you are locked in?

Scenario 2: From most customizable to least customizable for a customer:

Hosting

Server Virtualized

True SaaS

Why is this important? Your may have specific needs in an area where the SaaS vendor has not provided the deepest level of configurations. You can’t just go in and modify the code unless everyone else wants it or the vendor’s has it on the roadmap. The cost of comformity is the lack of flexibility. What will you do 5 years into a True SaaS scenario when you are locked in and the vendor won’t add the feature or functionality you need?

Your POV

What’s your view on SaaS vs Cloud? Does this help clarify the definitions? Are you looking at private, public, or hybrid cloud options? Add your comments to the discussion or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Please let us know if you need help with your SaaS/Cloud strategies. Here’s how we can help:

I am writing a new book titled, “Safeguarding Critical E-Documents” which will be published by Wiley & Sons in July.

At times I would like to quote the material and at others paraphrase it – but in any case all due citations will be noted.

If you could provide your email I can send you a form. But a simple email containing “yes you may quote and reference the material with due citations” and “to include this material in the publication mentioned above and in all future editions and revisions thereof, and in all derivative works, in all media now known or hereafter discovered throughout the world and in all languages whether published by Wiley or its licensees. These rights will in no way restrict publication of our material” will suffice.

It’s a legal thing, and we must ensure that permissions are granted, although it is traditionally a formal courtesy.

I would appreciate it very much, and would be happy to provide a copy of the book at no cost to you. The book essentially is a blueprint of how to combat “WikiLeaks-types” of document breaches using Information Governance policies and technology sets like Information Rights Management, Data Loss Prevention and document analytics.

I believe the book will be a valuable resource for governments and businesses alike.

[…] some modules that are multi-tenant, in most instances, these applications have been delivered in single tenancy or in multi-instance. Multi-tenant solutions will provide clients with the most efficient upgrade path and lowest […]

Thanks for the post and great comments. I thought you might be interested in this post on our Hype or Ripe blog. We ask IT leaders to vote on if an issue is Hype or Ripe… check out the results of this one, which debates the cloud’s tipping point, http://www.ict-log.us/8ZIQ1

[…] to apps. Point of View (POV): Oracle’s success in the public cloud will require more than just a multi-instance virtualized cloud offering. The lack of true multi-tenancy will prove to be a detriment to both customers and Oracle. […]

[…] to apps. Point of View (POV): Oracle’s success in a open cloud will need some-more than only a multi-instance virtualized cloud offering. The miss of loyal multi-tenancy will infer to be a wreckage to both business and Oracle. […]

[…] advantage – it already knows SaaS. And now, it has an ideal customer advisory board to build a Development-as-a-Service platform that delivers just the right amount of control to these highly innovative […]

Very useful overview, I recommend it to people all the time. However, in figure 2 (“Different Strokes Of OnDemand For Different Folks”), the last column isn´t displayed on the web page (atleast not on mine!), so I have to tell people to download it and then open it as an image! Any chance of changing this?

[…] Recently, I’ve seen some a few posts declaring Software-as-a-Service and SaaS to be outdated terms. At the same time, the replacement and all encompassing term that seems to be the trend — Cloud Computing– is being contested. Is it a superset of SaaS (or DaaS, IaaS and PaaS for that matter)? Is it something different altogether as Joel York discusses in a recent blog titled “Hey SaaS Experts — What’s Your Cloud Computing IQ?” or Ray Wang in his post titled “Understanding The Many Flavors of Cloud Computing and SaaS“. […]

[…] with or without SAP. With so much confusion on Cloud terminology, attendees wanted a reset on the definitions and categories of cloud computing. In each conversation, cost savings and flexibility drove the interest to consider cloud […]

[…] need to make the bet on how they will address hybrid deployment models and the different flavors of cloud computing. Moreover, organizations need to place bets on next gen technologies. One time honored […]

David – appreciate your usual candor. Actually, the point i may have missed is vendors who can do multi-tenant can choose to go the other directions. Not as easy to start with Hosting and work your way to the other end. Additionally, it is much cheaper for the vendor to run in multi-tenancy as you also mentioned. It’s important b/c of the cost structure and long term costs to the vendor that will get passed on to customers over the life of the subscription. – Ray

This is a little too value-free for my taste. Accurate, perhaps, but not representing the issues clearly. Yes, the advantages of single-tenant (on-demand and hosted) are what you represent. But you don’t address the fundamental issue, which is how much those advantages cost. The answer is: a lot. See my recent blog post on the subject, blog.b2banalysts.com.

Have you thought about addressing the right-sizing of procurement processes for cloud applications? Its ironic to see some organizations understand not only the cost but complexity reduction of cloud applications, but then use a traditional RFP process that involves lots of internal resources,3x to 4x in RFP development compared to the implementation time of the actual project, and ultimately costs more in resources than the project itself.

[…] war focuses on dominating the tools for creation. Those legacy vendors who fail to move to the Cloud. adopt PaaS, and deliver true SaaS apps can expect to fade away into history. Early leaders Google, IBM, and Oracle have some Java PaaS […]

[…] and maintain ownership of the software using Amazon EC2 in the back end. The result is a single instance approach to cloud delivery focused on IaaS (see Figure 1). Virtualization provides the key factor in cost […]

Another dimension that comes to mind is data security. In cases where we are hosting large aerospace and defense manufacturers, data cannot co-reside or co-mingle in any area (disk or memory) where “the others” (pardon the Lost reference!) have access.

John – great comment. time to add a third axis here about performance. might be another one for value and soon voilla’ a spider graph! Anyone else want to add some more dimensions into the mix on the different flavors? I think we could come up with some other good models! – Ray

Great discussion here, Ray! Perhaps I missed it, but the two main dimensions mentioned here is cost and flexibility. Does performance not play a role? While at Dreamforce this year, I listened in on a force.com presentation, and was told that apps that were more transactional and data intensive would be good candidates for force.com, and apps with a high degree of analytics (deep computations) were definitively not a good fit… I figured this was because in a “true SaaS” environment where multiple customers share the same CPU, and same application context, it is more difficult to make performance predictable for consumers of the service. Do readers here believe that performance (i.e. speed to getting the value from a service) is something worth paying for?

Yann – always up for a trip to France! Thanks for the insightful view on where the market is going. In fact, everyone’s forgotten to do at least some ROi analysis. Ultimately business models are the issue and we should explore these issues some more! – Ray

Good point to clarify things out! However the main challenge for companies on my point of view is not on the IT side asking “where is my app?”. I notice that the two main issues are on the business side with contract negociation (what clauses with what level of detail & associated engagement / penalties; for example on support, exit-migration) and business case (mostly Capex vs Opex). Well, these make the most of “big discussions” and most of my work on these topics with my customers.

If we take a from-space-view of the IT cloud market, editors have quite mature solutions, customers are rushing to cloud for TCO (but have often forgotten ROI analysis) and integrators in the middle MUST innovate & financially re-ingeneer their business model because their job is changing and might turn more and more towards “all included managed business services” on which they will have to engage deeply on behalf on all layers of the cloud model (editors, hosters, 3PM, telcos…).

Always a pleasure to read your posts, and if ever you come over in France…

Sorry I am late to comment here, have been busy. Great blog post and comments. I think this clears things up for people who don’t understand the distinctions between the three models. A couple of points… Some people call hosting “managed services” because there is such a huge professional services component associated with it. It is almost like outsourcing your entire IT department specifically for that application’s (or group of applications) use. That of course makes it very expensive. People sometimes are forced to move to this model because they have very specific SLA constraints and they want to contractually bind the vendor to provide “five 9’s” or whatever measure of availability and at the same time hold the vendor accountable with punitive damages if they don’t meet the SLA. The SLA applies to both availability and customer support. Another reason customers might be forced to the hosting/managed services model is because they have very special security considerations. For example, they require a VPN connected from behind their own firewall to the vendor’s data center. There are numerous other security considerations like “we need a dedicated encrypted DB that can pass a PCI audit” or “we need a secure channel to our internal CRM app.” So I would add Security and SLA’s to your considerations for all models, and show what levels of these you would expect.

Heya, so I’m making plans for using Amazon because i have seen that they really obtained great deals on a lot of things. Well here are some of my questions. Is Amazon safe and sound? Has anybody had any kind of problems with Amazon . com? Any id stolen kind of problems? Does UPS send the bundle or does the mail man send it in just like a big package or something? Is Amazon trust worthy with video games and such? If I ordered something, and got that item damaged, what must i do? Oh and how long will it normally take to get my bundle? Thanks in advance for taking the time to read this!

Roger – good points. Lots of FUD on flexibility in on-premise. Sometimes you can kill yourself with your own gun. Happens when you have too much flexibility and customize to a point you can never upgrade. – Ray =)

What is the best way to set up a decision grid to compare the advantages and disadvantages of SaaS vs. traditional in-house servers and ERP software purchase? What is the best way to compare the costs?

On the flexibility point it seems to me that at a business level the common wisdom is now upside down.

Given their (generally) more flexible/configurable design approach and use of web services from ground up, wouldn’t most of us agree that these delivery models are more flexible than traditional architectures? Even beyond their inherent design advantages (coming not necessarily from being smarter but starting at the right time) most of us that have platforms have also created ways for customers to extend applications in very customer-specific ways, and these are much more maintainable than the old approach of customizing source code.

Would traditional Siebel or salesforce.com be more flexible? I guess you could create specific use cases for both, but businesses largely voted with their dollars on what kind of flexibility they wanted.

So in terms of business-level flexibility, meeting changing business requirements in a time-frame and cost that is appropriate to the ROI, isn’t it time top put a stake in the heart of that the old on-premise FUD on flexibility?

Puneesh – the database layer will most likely be multi-instance with the apps instance single instance. Here we are probably arguing the advantages and disadvantages of virtualization. The tradeoffs in flexibility for efficiency is the key issue. I don’t have an answer to this but hopefully one of our readers will. – Ray

David – thanks for the insightful comments. Cloud is the new development model. Think of all the new startups today. How many are on-premise? I’d argue maybe a handful at best or none at all. The platform wars are exactly as listed – Force.com, Google App Engine, Microsoft Azure, IBM Blue Cloud, NetSuite BOS, and maybe Oracle if the host the Red Cloud. I’ll be up in Seattle and maybe Redmond next week. drop me a DM @rwang0 if you want to catch up. – Ray

Great post Ray (and great follow-up comments)! I particularly liked the level of clarity your approach brought to considerations and differentiations in this area. One additional thought, which I think is an emerging area but slightly different than the “delivery model for Internet based IT services” framework you described here, is that cloud computing represents “a new development model for Internet based services” (e.g., the way we design and implement applications).
This is because, if we’re only looking at cloud computing as a new delivery model, then would cloud environments be just other data centers to run applications that were written with traditional data-driven architectures (despite the single/multi-instance and single/multi-tenancy differentiations)? On the other hand, with the latest breed of PaaS providers such as Force.com, Google App Engine, and Microsoft Windows Azure, a different type of application development model emerges and offers new possibilities.
For example, applications that employ designs using horizontal scaling, services-oriented composition, eventual consistency, fault tolerance, data de-normalization, parallel and distributed processes, etc. And these designs enable application models that are more federated, elastic, parallel, etc.; which traditional delivery models don’t support very well. This perspective sort of puts figure 1 in an apples and oranges context.
Although we can debate whether this perspective really warrants additional focus, or a different way of categorizing cloud computing capabilities, I think the true power of cloud computing is not just in a new delivery model; it’s how it enables a new generation of applications that can operate at Internet-scale, and live and breathe within the ebb and flow of the Web.
Just my thoughts of course. Best! -David (blogs.msdn.com/dachou)

Ray, I am still not convinced on multi instance feature, where different customers can use different versions of software. What difficulties you see in such a scenario and any pointers on what top 5 activities that need extra focus in this case?

Yeah, but maybe it is also just a definition problem
For me, i only knew about the SPI stack in Cloud offerings, the SDPI-Segmentation is new for me, but it definitely makes sense to differentiate between Middleware and Dev-Apps there.

– code customisation (via a “runtime as a service” and a developer centric suite of tools)
– allowing for more deeper control and the creation of custom logic, workflows and triggers, suitable for more elborate and complex business logic.

As far as I recall there are a number of multi-tenant SaaS/PaaS providers that offer code customisations, but it been a while since I looked at this space in detail.

In a previous life, I created a similar diagram, but had a “creation” like layer that had it 2 tiered, with data/customisation on top and code customisation below it.

Is there no way to modify a Multi-Tenant SaaS ERP solution? Afaik the upcoming SAP Business By Design v. 2.6 is gonna be “real” multi tenant, but the SDK gives the possibilities to adapt to specific customer requirements.
So i am a bit confused now…

Imo it should be possible to customize, as long as you define specific spots in your processes and also interfaces you can use. Am i wrong?

Alan – size of company does play a big role here. An SMB does asusme that their SaaS application includes all the cloud components as they only consume the app piece and don’t worry about the other 3 layers. Thanks for pointing that out! Anyone else see other distinctions in nomenclature like this? – Ray

Ray, from my experience in the SMB space, the differentiator seems to be application vs. infrastructure. They tend to see SaaS as application — Salesforce.com, et al — whereas cloud comes more into the picture when talking about infrastructure such storage, backup, and content delivery — Amazon EC2, Rackspace, et al.

A great post. Hope at some point you’ll weigh in on the newest – private “inhouse” clouds. Have discussed exactly the same four layers about
an “internal cloud” – and am wondering whether the layers given here – play out?

Ray
Most customers we see today have a mixture of on-premise and SaaS. I think that will continue to be the case until the SaaS “ecosystem” is sufficiently built out with a comprehensive set of integrated applications to cover most common business requirements. Designing for multi-tenancy day one has helped us to devote development resources to functionality rather than packaging and also lowers ongoing support costs. Of course we need to provide the ability to configure and personalize so that the customer (and individual users) don’t feel that the application is too rigid and doesn’t meet their needs. Integrating with other applications also provides more choice within the SaaS environment.

We integrate with other SaaS applications today and over time we will continue to open up more of our web services interfaces to allow us to integrate more tightly with other applications, including custom applications that might reside in the cloud or on premise. This enables us to participate in the SaaS ecosystem build-out and I expect other SaaS vendors will open interfaces and contribute to this build-out as well.

Wayne – thanks for sharing your point of view. do you think customers will want to be able to consume on premise and then on demand. does designing for multi-tenancy make it easier to offer more choice in the future? look forward to yours and other thoughts here. – Ray

Stuart – there are many many different flavors so choice, value, and predictability still hold true. Clients will eventually expect vendors to deliver across the spectrum in deployment options. Hybrid is here to stay as with the old legacy mainframes. Everything as a purpose and time and portfolio strategies will win out, though the mix may be different. What does everyone else think? – Ray

This is a very good summary of the situation and various cloud layers. As we work initially with business people they really don’t care about the specifics of the architecture and delivery model. They want to know they will get the functionality they want, securely and cost-effectively. Once IT is brought into the picture we have to explain in more detail that we are a true SaaS solution and the benefits that brings in terms of rapid deployment etc. Even here we typically don’t get into the details of whether we are using a physical hosted environment or Amazon (we use both but that is beside the point). We do have discussions about our processes, service levels, SAS 70 Type II and our ability to securely connect to other systems as required to extract data.

The various arguments about defining the cloud environment seem more to satisfy industry analysts and purists rather than being relevant to companies looking for cost-effective ways to quickly and securely deliver additional business value, while leveraging their existing IT investments and enabling their IT resources to focus on their core compentencies.

It’s very good to see honest statements like “Just because you are multi-tenant SaaS doesn’t mean you are better.” and “then the SaaS bigotry begins.”.

I feel people put their own barriers in the way and get more hung up on the technology or the cost to the vendor… most likely to try and leverage competitive advantage. Whereas in reality all of these options will coexist for many years to come. It’s also worth noting that a start-up business may have dramatically different requirements and needs than an established large extended enterprise business, and that will cover the spectrum between your scenarios above.

The real key to success IMHO is to offer customer choice and value for money.

Great post! Been wondering about our EMEA privacy laws and how companies like Success Factors or Salesforce.com meet the regulations. Do they have a hosting center in EMEA that ensures no data leaves? Wondering how that works and how do they keep true saas multi-tenancy? Anyone know?

Steve – That’s an interesting point! I’m guessing you can have multi-tenant SaaS in a private cloud. I’d suggest its relative to what you are delivering to. For example, a company like GE or ConAgra or Siemens may choose to deliver multi-tenancy across its subsidiaries in a private cloud. Nothing bars it from doing so. What does everyone else think? – Ray

Ray – Here’s how I see it. The cloud delivers computing (e.g., CPU, storage, network) as a service/utility over the internet. Akin to IBM’s time-sharing in the 1970s from a benefits perspective, although the technology has certainly changed (e.g., virtualization, grid, open standards, massive resource scaling, dynamic resource provisioning, NAS, low-cost RAID storage).

SaaS delivers applications (e.g., HR, CRM) as a service/utility. SaaS applications can be delivered via a number of “channels,” from the vendor’s own dedicated datacenter, to a third-party datacenter provider (e.g., Savvis), to a “true” cloud computing environment (e.g., Amazon EC2) which takes advantage of the latest technologies such as virtualization to maximize resource utilization.

Ultimately, the cloud is the infrastructure/platform – i.e., the delivery channel – for SaaS applications. That’s to say, SaaS applications can run on the cloud, BUT, do they have to? This is where it gets tricky, and the discussion about private vs. public cloud becomes germane.

The problem is that I have yet to see a simple, consistent definition of the various cloud options (e.g., public, private, hybrid). For instance, you point out in Figure 2 that multi-tenant SaaS must operate in the public cloud, but depending on how you define “public cloud,” this may or may not be correct. What are your thoughts?

Roger – I agree that the story should be about how next gen CIO’s will work with these new set of tools and disruptive technologies. Unfortunately, the basic definitions and understanding is at such a minimal level we do need some common definitions for both IT and business buyers. At least they can describe what they bought =) Good points as usual – Ray

For our own purposes we’ve gravitated to “cloud” as the term to describe a SaaS application for one simple reason: it passes the parent/neighbor test.

We asked our team to tell their parents and neighbors what they did using both terms, and it wasn’t even close in terms of how much additional clarification was needed. FWIW we’re testing the use of ECM vs a variety of descriptive terms, and so far things like “documents in motion,” which ECM veterans hate, resoundingly beat the techie acronym (upon which even the experts cant agree on a common definition)

If we’re trying to communicate with line of business buyers, not just IT, then shouldn’t we should spend less time creating our own Na’vi-like language spoken by a relatively few zealots? Do we want to use a 4 letter acronym, which can be easily confused with similar 4 letter acronyms, or something that easily conveys that it all happens “out there”.

So while the debate on terms is entertaining, (and I say this as a SaaS/cloud vendor) at some point it becomes like bad sports radio. The features of the taxonomy are only as interesting as the benefits (and I think you got the flexibility point dead wrong, but another post).

The much more interesting dialog is around what all this means around the role of IT going forward, how it impacts organization, skills and relationship with the business. At a recent conference of a traditional analyst firm, the CIO’s for Moto mobile devices and Stratus talked about how they’ve been able to be better partners for the business as a result of being able to focus fewer resources on operational IT. Seems to me that the story here.

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Meet R "Ray" Wang

R “Ray” Wang is the Principal Analyst, Founder, and Chairman of Constellation Research, Inc. He’s the upcoming author of “Disrupting Digital Business” to be published by Harvard Business Review Press in Spring 2015. His popular business strategy and technology blog “A Software Insider’s Point of View” has a viewership in the 10′s of millions of page views a year. Ray’s blog provides insight into how disruptive technologies and new business models impact the enterprise.